Protecting Social Security Benefits from Predatory Lending and Other Harmful Financial Institution Practices

Source: Margot Saunders, National Consumer Law Center, Testimony before the Subcommittee on Social Security Committee on Ways and Means U.S. House of Representatives, June 24, 2008

…We estimate that on a monthly basis tens of thousands of low income recipients of Social Security,SSI and other federal payments whose benefits are entirely exempt from claims of judgment creditors are left temporarily destitute when banks allow attachments and garnishments to freeze their only assets. We believe our estimate of over 1 million recipients of Social Security and other exempt federal benefits a year who have their funds illegally frozen by banks is very conservative, and that the real number is likely much higher. As was illustrated in a recent Wall Street Journal article (“The Debt Collector vs. The Widow – Viola Sue Kell thought her Social Security benefits were safe in the bank. She was wrong.”),when a bank applies an attachment or garnishment order to the exempt funds in a low income recipient’s bank account, the consequences are generally devastating. There is no money for food or medicine. Checks written for rent or the mortgage are bounced. People go hungry. They get sick or sicker. They suffer anxiety. They are forced to pay steep bank fees and fees to merchants because the checks they wrote when they had money in the bank now bounce….

…Despite the explicitness of the federal law and the purpose of these benefits, banks (after receiving garnishment or attachment orders) routinely freeze accounts holding these benefits. When the account is frozen, no money is available to cover any expenses for food, rent, or medical care. Checks and debits previously drawn on the account (before the recipient learned that the account was frozen) are returned unpaid. Subsequent monthly deposits into the account will also be subject to the freeze and inaccessible to the recipient….

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